The Recovery Audit Contractor and What It Means to You


shortissue7In the last issue, I discussed the reasons behind the increased audits and reviews and the decreased fees. This issue, I will explain more about the recovery audit contractors and why they will be a problem for the foreseeable future.


In March of 2005, CMS started the Recovery Audit Contractor Demonstration Project. The project originally included three states (New York, Florida and California) with one contractor each. In December of 2006, Congress mandated that the Recovery Audit Contractor program be made permanent. In June of 2007, Massachusetts, South Carolina and Arizona were added to the states covered by the demonstration project. During the demonstration project, the three RAC’s recovered $992.7 million while earning $187.2 million in contingency fees (commissions).


It is worthwhile to note that the same legislation, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), authorized both the Recovery Audit Contractor Demonstration Project and the Chiropractic Demonstration Project. While the Recovery Audit Contractor Program has been fully implemented, the final report for the Chiropractic Demonstration Project has not yet been officially released on the CMS website and the only action taken has been to temporarily reduce the fees of chiropractors nationwide by 2-3% to make up for the budget overage. (As of the writing of this article, CMS has re-instated the full fees from 2009 with a very slight increase retroactive to the first of the year). The point of this observation is to note the importance that CMS and Congress place on the Recovery Audit Contractor program.

In simplest terms, the purpose of the Recovery Audit Contractor program is to find a reason to recover money that has already been paid to the provider. They accomplish this by requesting patient records going back as far as three years, reviewing these records and finding any acceptable reason to deny the claim as medically unnecessary. They will then collect the overpayment from the provider and earn themselves a commission in the process (about 20%, if you go by the demonstration project figures). If they find acceptable reasons to deny your claims, you can count on them coming back for more. They can request from 10 to 30 claims per NPI number (depending on how your practice is structured) every 45 days. 

Functionally, this means that Medicare will pay your claim and then, up to three years in the future, review and deny your claim and ask for the money to be returned. They will then pay another doctor with that money and, up to three years in the future, review his claim and ask for the money to be returned, and so on.

The patient will see this differently. The patient will receive notification from Medicare that you were paid the full amount that you should have been paid. They will then receive notification a few years later that you had to pay the money back because you didn’t do the paperwork correctly. When you ask them to pay for the service, they will not feel responsible because it was your mistake that caused the refund and they will be reluctant to pay you. Essentially, you will be working for Medicare for free. Oh, and by the way, you can’t opt out of Medicare and treat patients on a private contract basis the way MD’s and DO’s can.

While this scenario paints a bleak picture of the future, there are steps that you can take to protect yourself.

First, you must improve your documentation. The only way that a reviewer can know what you have done for the patient, and why, is by reading your documentation of the patient encounter. Medicare will only pay for care that meets their definition of medical necessity and it is up to you, the doctor, to ensure that your documentation satisfies that definition. If you are outside of the parameters that Medicare considers to be medically necessary, the reviewer will deny your claim and demand the money be returned.

Secondly, you must aggressively appeal all denials. If your records are reviewed and the claims denied, then start the appeal process and be prepared to appeal to, at least, the third level (the Administrative Law Judge). Not all reviewers are created equal. Some understand chiropractic and some do not. Be prepared to persist through the appeal process until you succeed.

Both steps are necessary to protect yourself from the threat posed by the Recovery Audit contractors. No one is going to protect you but you. Take the necessary steps today.


Dr. Ron Short is a certified Medical Compliance Specialist, a certified Peer Review Specialist and a certified Insurance Consultant. He consults with doctors regarding Medicare and office compliance programs as well as presenting seminars on Medicare, documentation and compliance. You can send your question or comments to Dr. Short or join his mailing list at [email protected].


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